Impact of rising home loan interest rates on real estate demand in India

home loan rate of interest

After a recent repo-rate increase by the Reserve Bank of India, many banks and NBFCs have
revised their home loan interest rates resulting in an overall hike. The move has come out
with a hike in the RPLR and MCLR of top lenders like HDFC, PNB and ICICI Bank. This will
result in an increase in the home loan EMIs for new as well as existing borrowers.

As a matter of course, these hikes will definitely have a significant impact on the real estate
market of India and the overall homebuyer sentiments. Let us talk about this in some detail.

Industry experts translate the new rate hikes into more understandable numbers for the
readers. They say that a 1% increase in home loan interest rates will reduce the homebuying
affordability by 7.4%. While this may look like a big number, the actual impact will only be
seen gradually.

Having said that, a number of real estate developers in India are of the opinion that though
the affordability may have come down in absolute terms, this will not have a much larger
impact on the homebuyer sentiments and real estate demand. Three main reasons can be
attributed to it:

  1. Due to the market slowdown during and post COVID, there is a lot of pent-up real
    estate demand which will definitely be brought out by the homebuyers.
  2. As the market situation is improving month-on-month, buyer sentiment is also
    improving and the situation is expected to get better in future.
  3. The affordability is at its best currently, for both residential as well as commercial
    properties. This, in fact, encourages more people to put their money in real estate
    rather than other riskier investment avenues like stocks.

A comfortable level of real estate prices, when combined with the long-suppressed need for
homes or other real estate opportunities, is expected to result in a renewed enthusiasm
among buyers.

However, we cannot say that the rate hikes will have no impact at all. At some level, it will
act as a psychological barrier, especially among residential property buyers. Going forward,
if property rates witness a gradual increase, it can dampen their spirits to buy a house. But
buyers need to understand that the previously set low interest rates could not be a long-term
thing and it had to increase sooner or later.

Buyers who have been meaning to purchase a property should not hesitate now as the
overall market situation is favorable and it will result in immense profits.

Join The Discussion

Compare listings